This paper is intended for readers who want to better understand the dramatic changes that have begun to take place — and that are accelerating — in the global payments industry. Based on the results of a bank client survey conducted by BNY Mellon Treasury Services earlier this year, we know that this is an area where financial institutions vary greatly in terms of their level of knowledge and perspectives and a subject that they are eager to learn more about.

In that survey, when asked, “Which reaction best describes your organization’s level of focus, attention and development in the emerging technology space?”, nearly half of the respondents — 120 senior executives representing many of the global financial institutions we currently serve — said they are, “Moving forward, but in a measured way (mostly pursued through shared resources with little or no venture investment). More than one-third said they were just “getting organized.”

Which Description Best Fits Your Organization?

Clearly, it is an opportune time to share more information about the various avenues to payments modernization and associated technologies. So herein, we will share with you more results from our survey as well as explore the factors that have spawned and continue to drive changes in our industry; tell you how both banks and their clients are being affected; and look at how banks are simultaneously pursuing new opportunities for growth while also striving to deter potential loss of market share.

It is a complex saga with numerous and diverse players — some with familiar names and some brand new to the payments business — and its cast of characters and storyline continue to evolve at an unprecedented pace.

In our opinion, the industry has never been more exciting. There is a lot going on and, for once, we have more to focus on than meeting regulations and managing risk! Truly, as a result of pressures from various innovators, payment industry participants are pushing a wave of payment transformation, focused on our clients and on what we — individually and as an industry — can do to improve our services for them. That’s a refreshing development in a field that, quite frankly, has been slow to adapt.

Veterans of the U.S. payments industry know that there has been little fundamental change in the payment infrastructure since the rollout of ACH in the 1970s. And in the cross-border arena, while generally reliable, the process long used to move funds globally is fraught with familiar challenges related to timing, cost and transparency. Until recently, however, clients were not aggressively pushing for change. Thus, banks did not attempt to fix what was not broken; they knew the amount of money, time and coordination required to effect real transformation would be immense.

The status quo might have continued were it not for several factors that combined to create “the perfect storm” for payment providers. Nimble new competitors — now commonly referred to as “Fintechs” — began looking for opportunities to apply cuttingedge technologies (e.g., blockchain) to penetrate the payments space and other revenue sources that banks have relied upon for years. Market factors such as a growing consumerism in payment solutions, more globalized trade flows, and increasing fraud and cyberattacks emerged. Concurrently, the 2008 financial crisis raised questions in some clients’ minds about how well banks were serving them. And while banks realized that they needed to take immediate action to innovate, their ability to focus was impeded by the need to divert attention and resources to issues such as compliance and risk management. Until recently, it seemed feasible that banks could lose their foothold in payments processing to Fintechs and other nonbank providers. Their advanced technology, agility, and fresh concepts appeared to be capable of addressing many of the historic weaknesses in the payments space. A media frenzy with numerous articles and announcements from the Fintech community contributed to that perception.

Today, the outlook has shifted somewhat. Both banks and their Fintech challengers have realized that, while Fintechs offer some intriguing ideas and advanced technologies, banks also bring value to the table. Banks have significant advantages in terms of network effect, established standards, regulatory know-how, and large, entrenched client bases that give us necessary scale. So both groups are asking how we can best proceed to achieve our mutual goals for success:

Should banks evolve their current suite of payment solutions to compete head on with Fintechs?

Are banks better served by acting collectively among our own ranks to improve the payments system to meet our clients’ changing needs?

Can the two groups combine our unique areas of expertise to create a better client experience?

Herein you will find coverage of each of these approaches, along with BNY Mellon Treasury Services’ position on which avenues we believe may make the most sense for us and for our clients as we seek to provide a better payments experience. Throughout, we will also provide you with a round robin of perspectives, gathered from a range of BNY Mellon’s own senior leadership as well as respected industry experts, and share with you insights from our previously referenced client survey. And, because it too cannot be ignored, we will take a quick look at “blockchain” technology and how it factors into the transformation in progress.

As we consider the alternatives, we are all focusing on the same question. How will our clients be best served? That will drive the ultimate decision. While we welcome all innovators, banks have to be relentless in striving to create the positive experience we want for our clients and that they are seeking.

Read on to learn more about the brave new world we face in the payments industry. It is one where we all—banks, Fintechs and industry groups — have a vested interest in learning about in order to survive and thrive. Banks cannot become lax, thinking we can control the pace of change. As an industry, we need to stay focused on where we all intuitively know technology is taking us, by modernizing the payments ecosystem and striving to deliver the improvements we know clients want. Our future depends on it. The time to act is now.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally. This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries, affiliates, and joint ventures of BNY Mellon.

The material contained in this white paper, which may be considered advertising, is for general information and reference purposes only and is not intended to provide or be construed as legal, tax, accounting, investment, financial or other professional advice on any matter, and is not to be used as such. This white paper is a financial promotion. This white paper, and the statements contained herein, are not an offer or solicitation to buy or sell any products (including financial products) or services or to participate in any particular strategy mentioned and should not be construed as such. This white paper is not intended for distribution to, or use by, any person or entity in any jurisdiction or country in which such distribution or use would be contrary to local law or regulation. Similarly, this white paper may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized, or where there would be, by virtue of such distribution, new or additional registration requirements. Persons into whose possession this white paper comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction. To help us continually improve our service and in the interest of security, we may monitor and / or record telephone calls. The information contained in this white paper is for use by wholesale clients only and is not to be relied upon by retail clients.

Any discussion of tax matters contained in this white paper is not intended to constitute tax advice and is not intended or written to be used, and cannot be used, for the purpose of avoiding tax or penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another party any transaction or matter. For tax advice, you should consult an independent tax advisor for advice based on your particular facts and circumstances. The contents may not be comprehensive or up-to-date, and BNY Mellon will not be responsible for updating any information contained within this white paper. Some information contained in this white paper has been obtained from third party sources and has not been independently verified. BNY Mellon makes no representation as to the accuracy or completeness of the information provided in this white paper. BNY Mellon recommends that professional consultation should be obtained before using any service offered by BNY Mellon.

The views expressed within this white paper are those of the contributors only and not those of BNY Mellon or any of its subsidiaries or affiliates. BNY Mellon assumes no liability whatsoever (direct or consequential or any other form of liability) for any action taken in reliance on the information contained in this white paper, or for resulting from use of this white paper, its content, or services. Any unauthorized use of material contained in this white paper is at the user’s own risk.

Reproduction, distribution, republication and retransmission of material contained in this white paper is prohibited without the prior consent of BNY Mellon. Trademarks, service marks and logos belong to their respective owners.